Revlon Inc. (NYSE: REV) will acquire Elizabeth Arden Inc. (Nasdaq: RDEN) for about $419 million, a wager that uniting two aging cosmetics giants can reinvigorate both companies’ brands.

The beauty sector has seen robust deal activity lately. Catterton took beauty products retailer Steiner Leisure Ltd. private; Coty Inc. (NYSE: COTY) is in the process of buying more than 40 beauty brands from Procter & Gamble Co. (NYSE: PG); and Coty announced plans to buy Hypermarcas SA’s beauty and personal care business;

The $14-a-share deal values Elizabeth Arden at about $870 million when debt is included, New York-based Revlon said on Thursday. The cash transaction represents a 50 percent premium over Elizabeth Arden’s closing price of $9.31.

Revlon, controlled by billionaire Ron Perelman, sees an opportunity to revive the fortunes of Elizabeth Arden, an unprofitable company whose celebrity-branded fragrances have lost favor with consumers. The merger will bring together the 84-year-old Revlon with the 106-year-old Arden business in the hopes that a combined distribution network and marketing strategy can broaden their appeal.

“We see great opportunities for growth where they are strong and we are not,” Revlon Chief Executive Officer Fabian Garcia said on a conference call.

The deal marks a turnabout for investors, who had been speculating earlier this year that Revlon might be an acquisition target -- rather than a buyer. Perelman’s investment firm, MacAndrews & Forbes, announced in January that it would explore strategic alternatives for Revlon. That sent the shares surging as shareholders wagered that a buyout of the company was in the offing.

Instead, Revlon is turning to another well-known cosmetics name that has struggled to maintain growth in recent years. The deal will allow Revlon to expand its footprint in fragrances and skin care, Garcia said on the conference call. The company also sees growth opportunities in key regions that Elizabeth Arden is strong in, such as China and other Asian countries, he said.

Bank of America Corp. and Citigroup Inc. have committed about $2.6 billion to help pay for the acquisition and refinance Elizabeth Arden’s debt, as well as Revlon’s existing bank loan and credit line, the company said. The company expects cost savings of about $140 million from the merger by eliminating duplicated operations, gaining purchasing power and sharing a distribution network.

Elizabeth Arden shares soared as much as 50 percent to $14 in late trading after the purchase was announced, in line with the transaction price. Revlon rose less than 1 percent to $31.30.

Speculation that Revlon would be acquired was quelled in March when the company named Garcia as CEO and said the former Colgate-Palmolive Co. executive would revamp the business. Revlon’s previous CEO, Lorenzo Delpani, stepped down on March 1, citing personal reasons.

Perelman gained control of New York-based Revlon in 1985 using cash raised with the help of former junk-bond chief Michael Milken. He sought to take the cosmetics maker private in 2009, prompting a lawsuit from other investors that he agreed to settle.

Elizabeth Arden, meanwhile, has been a buyout prospect in the past. South Korea’s LG Household & Health Care Ltd. discussed acquiring the company in 2014, but ultimately decided against it.

In addition to offering skin care and makeup, Elizabeth Arden is known for selling fragrances under names such as Taylor Swift, Britney Spears and Elizabeth Taylor. The celebrity endorsements haven’t helped the company cope with a competitive market for cosmetics. It has posted almost $400 million in losses during the past two years. Earlier in 2016, Elizabeth Arden agreed to buy the Christina Aguilera fragrance brand from P&G.

Elizabeth Arden CEO Scott Beattie said on the conference call that the financial strength of the new combined company will help attract new licenses in perfumes. He also expects the transaction to drive growth in some of its existing fragrance brands that have languished.

Both companies are coping with the shift to e-commerce, something Revlon has done better at so far, according to Giulia Prati, an analyst at L2 Inc.

“Revlon has an opportunity here to share its digital know-how through this deal and bring Elizabeth Arden up to speed,” she said.


-- Additional Reporting By Mergers & Acquisitions' Demitri Diakantonis

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